It was a media feeding frenzy this past NBA off season when longtime LA Clippers’ owner, Donald Sterling, made racially offensive remarks to his girlfriend that she captured on audiotape. The taping in and of itself was more than a little curious let alone its being released to the media by his young girlfriend. Mr. Sterling was, and remains, married to Shelly Sterling, who lives apart from him. Regardless, the media storm that erupted exposed an aging billionaire, whose ownership and management of the lowly Clippers franchise has long been a joke, of having had a history of racial insensitivity that the NBA largely ignored, and who appeared to be losing his grip on reality. Accordingly, Mr. Sterling’s mental status would be a key issue in the eventual forced sale of the franchise.
New NBA Commissioner, Adam Silver, promptly asserted his authority in the matter with a swift punishment that fined Mr. Sterling $2.5 million for his comments and banned him for life from ever attending another NBA game or being involved in any other NBA matters, a dubious penalty that his lawyers would certainly have later challenged, and began a process to strip him of his ownership. Forcing an owner to sell his team has little precedent under these circumstances, but Mr. Silver was adamant about the league’s authority so long as a majority of the other owners acquiesced. But Mr. Sterling and his team of lawyers were set to challenge the forced sale.
The Clippers team was being held in a living trust set up by Mr. Sterling with himself and wife Shelly as co-trustees, a not unusual situation. To remove him as co-trustee so that Shelly Sterling would remain as sole trustee, she had to have Mr. Sterling declared mentally incapacitated so she could go forward with the sale for an astounding $2 billion.
The question of whether someone is mentally unfit and unable to make reasonable decisions about personal financial matters can be a bit sticky, especially when billions of dollars are involved or a major sports franchise. When a living trust is established, there is the sometimes prickly issue of the eventual mental capacity of the trustee or co-trustees and the parties can determine within the trust how this matter is to be resolved. In this case, the Sterlings decided that if two physicians agreed that either one of them lacked the requisite mental capacity, that the other would become the sole trustee and, of course, the authority to make any decisions regarding the trust’s property.
In this case, Mr. Sterling, apparently confident of his mental abilities, voluntarily presented himself for examination by two neurologists. To his surprise, no doubt, both physicians deemed him mentally unfit.
Even without such a provision, Ms. Sterling could still have sought a conservatorship, citing the opinions of the two neurologists as evidence, and perhaps had a willing and sympathetic conservator (at least to her wishes) appointed to oversee Mr. Sterling’s interests, and gone through with the sale.
Eventually, Ms. Sterling became, under the explicit terms of the trust, the sole trustee and sold the Clippers to Steve Ballmer for the $2 billion price tag.
What this saga can warn us about Alzheimer’s disease and about living trusts, though, is that if you are setting up a living trust with two or more co-trustees, that you have a mechanism whereby your interests can be protected should you be declared mentally incapacitated under the terms of the trust. A simple method to accomplish this is by including a provision that appoints a successor co-trustee if this eventuality does occur. If Mr. Sterling had included such a provision, then we might have witnessed a fascinating duel in the courts between Mr. Sterling and the NBA.
Alzheimer’s is a progressive disease but you can still manage your affairs in the early stages of the condition. If you are diagnosed with Alzheimer’s, you may wish to promptly review your trust instruments and name a successor trustee whom you trust will act in your best interests or you can provide instructions in the instrument as to what you wish to do with the trust’s assets. In any event, consult with an estate planning lawyer when establishing a trust or have it and any other legal instruments comprising your estate plan periodically reviewed.